“Markets have gone up too much, too soon, too fast” - ROUBINI 5th Oct 2009
Nouriel Roubini, dubbed Dr Doom after he predicted the financial crisis, yesterday warned stock and commodity markets will fall as the slow pace of recovery disappoints investors. “Markets have gone up too much, too soon, too fast,” said the New York University professor. “I see the risk of a correction, especially when the markets realise the recovery is not rapid and V-shaped, but more like U-shaped. That might be in the fourth quarter or the first quarter of next year.”
Since March this year the sentiment in the markets has changed dramatically from the dark days of the credit crunch allowing for a thinly traded rally to occur (S&P up around 60%). Many financiers minds have been bewildered somewhat and find it incredulous that Wall Street and Main Street could disconnect so alarmingly. Today the bulls still hold the market by the scruff of the neck but as I highlighted in my ‘market warning’ email of 11th September investors globally have entered dangerous territory. Alarmingly markets and investors are ignoring consumer confidence statistics alerted to the fact that unemployment is actually rising (see US non-farm pay roll numbers recently) and production is suffering as businesses fail to come to terms with lower revenues and fewer customers. These same consumers, many of them cash investors, are hardly showing much faith in the stock market either. Cash net inflows into US equity funds is a measly $2.6bn in the last 6 months whereas bond fund inflows have increased appreciably. Politicians crow about the supposed success of various measures especially the scrappage schemes and yet GM report a drop of actual car sales end-Sept as -47% year on year. This is hardly good news.
In UK banking sector many tax-payers (self-employed & SME’s mainly) complain that lending has stalled or at least when proffered is wholly unreasonable. Despite a bank rate of ½% most banks are still profiteering from their entrapped customers (one can count the number of UK retail banks remaining on one’s fingers leaving the thumbs free). With FSA now calling for 3 x more capital amongst UK banks (to be held in Gov Bonds) one wonders where the money is coming from or how the lending practices and practicality thereof can be improved and ignited. Elsewhere billions have been raised in discounted rights issues where many household names have stiffened resistance by bolstering over-geared balance sheets but as I’ve highlighted since joining Redmayne’s in January 2005 the (dis)trust in universal accounting practices whereby companies are being encouraged (by accountants, consultants and investment bankers) to spuriously withhold detailed information concerning derivative positions and suchlike from shareholders is still very much in evidence. With regulators, politicians and market commentators calling for better transparency in the mature economies the opposite still seems to be the case when it comes to treating shareholders fairly. This and unfathomable corporate governance is the most damaging aspect of the latter stages of the long bull run that encompassed dot-com and then a global base metals stampede. In essence the continued prospects in the BRIC’s and other emerging markets are keeping mature markets alive but the real concern should be that practices adopted by western banks might just be replicated in the final engines of growth which the ‘emerging/emerged’ markets appear to represent. With very little growth in mature markets being translated to the bottom line it’s likely that more dividends are cut in problematic sectors as businesses struggle to manage and profit in an increasingly slowing global economy. Over-regulation could easily kill off many more smaller businesses unless incoming governments can get to grips with curbing the Public Sector and the nonsense that goes with it. Obama, Cameron, and Blair (in anticipation of the Fettes boy’s rise to head boy of the EU Senate) may just find that trying to translate jobs from the public to private sectors is virtually impossible in the current unreal regulatory universe. The domestic outlook for investors and young people is truly depressing and it’s not surprising that the pessimists are suggesting that the so called recession may well migrate towards The Greater Depression.
With £175 billion of Quantitative Easing in UK and some similarly shocking US$ numbers over the pond the real result of all this regulatory and governmental interference in capital markets is that debt levels across the private and public sectors is still spiraling (out of control?). I heard the other day that every citizen in UK may well have to pay directly/indirectly £25,000 per person for years to come just to stall the overall public sector debt. This frightening scenario just hasn’t been taken on board by most of the electorate (yet). Nor by most politicians either nor the vast numbers of spin doctors by the judge of it.
A further major sell-off of global equities is likely quite soon. Multiples (price earnings ratios) and valuations on all accounts appear over-cooked (see 20 & 30 day moving averages). A nasty surprise may come from China very soon as the 10s of millions there embrace all the creature comforts of rapid growth <=Rapidly rising property prices, extraordinary sales in domestic goods -computers, mobiles, iPods, etc, new factories (cars), greater mobility and a stock market in the stratosphere, etc, etc.> Where has one heard that before?
When will equities become attractive (again)? Well, some think they already are but markets don’t just retrace and rise constantly and consistently. It may be a worrying loss of faith in the $, it may be a shock in taxes, it may be a black swan event (Iran, Korea, Afghanistan), an implosion of growth in China &/or emerging markets, a major corporate scandal and failure (& this is quite possible), but something will happen that brings markets back to reality.
Going forward hereon the shrewdest way to position one is to focus on oils, metals (mainly of the precious variety) and the odd gem amongst traditional equities. To date those investors holding blue-chips may indeed have had a good run but when the train slides off the track or enters the siding the repairs or replacements may be very laboursome and cumbersome.
To summarise then I continue to believe that the next quarter is (yet again) one to batten down the hatches! My favourite stock picks are BP, Royal Dutch Shell ‘B’ (safe dividends), Randgold, Harmony Gold and Yamana Gold; the latter 3 are ‘insurance viz-a-viz capital protection’ against a severe downturn predicted. I am still avoiding banks/financials and thinking seriously about pharmas (Glaxo), water (Northumbrian) and grocers (Sainsbury). Whether Noudini is right about the ‘U’ shape is open to conjecture as others predict ‘L’ & ‘W’ patterns but a wake up call similar to what happened when Lehman failed is a virtual certainty. Detroit still is in a mess and western industries are struggling to maintain momentum. The stock markets, of course, aren’t looking at Main Street just yet but I detect an undercurrent of doubt creeping in. As you know I have been advocating high cash positions throughout the last Q and exposure in ‘gold’ where appropriate as inflation can be spotted on the horizon.
Tuesday, 6 October 2009
Friday, 11 September 2009
Treating Stockbrokers Fairly (TSF)
OPEN LETTER TO LONDON STOCK EXCHANGE/SECURITIES & INVESTMENT INSTITUTE/APCIMS/FSA/UK GOVERNMENT/MEMBERS OF PARLIAMENT/FLEET STREET/INVESTORS & OTHERS ON THE ELECTORAL ROLE WHO BELIEVE IN DEMOCRACY, FAIR PLAY & THE RIGHT TO WORK
I suppose if you're a builder and have been putting up skyscrapers for a living for 30 years plus you would be pretty miffed if someone told you that in order to continue what you've been doing for most of your adult life you would have to take a degree course. Furthermore this examination would take around 3 months off your work schedule and might lose you some contracts in the process. Without this examination and the assumed certificate you would NOT be able to practice as a self-taught builder. As part of this examination process you might be told that the British way of building was no longer the norm (by someone who has never lifted a brick) and that you must adopt new methods that have only recently been proved to be disastrous for the industry. In addition the reappraisal of the Health and Safety issues surrounding your building activities would be reappraised and a lecturer would remind you of the need to wear a hard hat even whilst sitting inside your wooden shed eating sandwiches and drinking builders tea. READ ON....
My partner, a former Lieutenant in the Russian Army, a daughter of KGB parents (& a friendlier family you couldn't imagine to meet) has ordered me to respond in the appropriate manner. I was brought up in a typical English (actually the roots are Cornish but I wont dwell on that just now) family with strong protestant beliefs and a self-belief that fair play and hard work would pay off in the world of business, a business or profession as it happens that family members have been doing the same way for over 135 years. In the traditions of many apprentice trades the world of stockbroking and investment management has evolved through brokers passing on trading and investment techniques to younger brethren and investors in turn often writing and talking about their experiences sometimes to brokers but usually to all and sundry. I have a letter dated 1986 during 'Big Bang' suggesting that I was deemed back then (perhaps) as someone who they would grant a Registered Representative status to. The letter goes on to say that the LSE would respond in due course. That follow-up letter from London Stock Exchange ("LSE") never arrived and as my father, my younger brother, around 3500 Members of the Stock Exchange can testify the single ownership shares controlled by them were unceremoniously swapped for a pittance, £10,000 each. In order to appease this obvious anomaly in valuation their membership was transferred to a new FREE body (The Securities Institute) who promised to protect their interests and uphold the ethics that once proud Members maintained. In addition those younger brokers and practitioners, then described as the "marzipan layer", were unconditionally offered FREE membership alongside the former Members, some who had taken Stock Exchange Practice Examinations, others simply fathered in. It should be recalled that the "LSE" effectively suspended its examinations around 1986 and The Securities Institute (as it was known then) took on the old Members and a few "marzipan" brokers without any plans to introduce or replace the existing arrangements. My interview with the then CEO clearly stated to me personally at SII offices near the Monument that a waiver for further examination would be accepted at any time in the future. My father, my younger brother, myself and around 3500 stockbrokers and stockjobbers thus became MSI (Members of The Securities Institute). Many brokers back then were alarmed at the way that investment banks were behaving; the rest is history. The Securities Association was formed from the Financial Services Act 1986 and all 'registered representative' licences were administered to those of us deemed competent to give advice. Those that had been simple assistants were given 'registered trader' permits allowing them to take orders rather than actually give advice or transact. Now a peculiar thing happened I recollect prior to the new Act, FSMA 2000, replacing the FSA 1986. All compliance departments reassessed those in the front office and 'control functions' were introduced. I remember being seriously perturbed that my qualifications in banking, my experience as an inter-bank money broker and my experience as a bullion broker & clerk between 1975 (when I left school) and 1980 when I joined a stock exchange member firm would NOT be taken into account. In essence I believe that it was too complicated for my compliance department at that time to processs these functions but ultimately my control functions were (see FSA website register on the internet) CF21 Investment Adviser, CF26 Customer Trading and interestingly CF27 Investment Management dates 1st Dec 2001 to 31st October 2007. These dates are interesting because it would appear now that brokers and investment managers in my position have been suitably stitched up by FSA and all the bodies that have interests in maintaining CPD (Continued Professional Development) and generating vast revenues from providing courses and examinations for younger less experienced capital markets personnel. On 1st November 2007 prior to the June 2009 publication of the 168 page Retail Distribution Review my control function was downgraded like many others to merely CF30 Customer allegedly replacing the previous 3 functions but actually teeing us all up for a new Level 3/Level 4 process. Words like draconian and orwellian spring to mind but it's the sheer ageist attitude here together with the lack of honesty, integrity and ethics that I find extraordinary. No wonder then that many secretly are alarmed at the little white book that was sent to me recently by The Securities & Investment Institute (now with 40,000 members)entitled "Integrity At Work". In addition the FSA have introduced another interesting sideshow called "Treating Customers Fairly". It might be argued, and who could disagree, that the banks have NOT treated their customers fairly but without sounding arrogant or patronising I doubt the same could be said for the remaining UK stockbroking firms nor their personnel. Perhaps if the UK government had listened back in 1983-1985 to the experienced exchange personnel who objected to banks competing head to head with brokers in investment products and trading enterprises then this debate about professionalism and integrity would not have surfaced. It was evident, however, to many that once the Conservative Government had introduced the FSA 1986 and a new regime of regulation and compliance that a monster would be created. I suppose that the great irony is that it was the same Thatcher government who preached PRODUCTIVITY that created this institution, the super-regulator, that meanders from one crisis to the next, preventing established practitioners from driving the investment community. One former broker I know eloquently referred to the compliance industry as THE DEALING PREVENTION UNIT and he wasn't far from reality. Having looked at the RDR myself I find little to commend. It has little mention of what we do daily and seems to forgot the raison d'etre for having stockbrokers and investment managers in the first place. The sheer misundertanding of the word INVESTMENT is the basis of what is wrong with FSA (and New Labour). The likelihood of FSA addressing the need to attract suitable professional personnel is unlikely. In the past few years there has been a deliberate attempt by FSA to replace ex-practitioners with lawyers, accountants, professional bureaucrats and such like. I can't see any reasonable experienced and competent stockbrokers and investment managers moving across to a compliance role.
The Conservative Party should oppose the RDR and all its recommendations as it goes against the grain of what the british end of the market stands for. The sooner the FSA is disbanded the better along with the permanent dissolution of FSMA 2000 and the interference that goes with it. Over the last few years many onshore bucket shops have been granted licences by FSA; if they sat offshore they would be called boiler rooms. A new exchange that is self-regulated like the old exchange that my family were part for over 130 years is long overdue. The SII like many other groups with vested interests needs clearer direction and I think UK broking personnel need to stand up to these orwellian changes. The alternative is to move offshore BUT this would be a great disservice to the many '000s of clients that already have had to put up with monstrous legislation, the costs of which have been passed on to them and are likely to continue to do so. The current millions of complaints outstanding with the banking ombudsman will pale into significance if experienced personnel grandfathered into the process are treated this way.
YOUR EXCHANGE NEEDS YOU TO STAND UP TO THIS HYPOCRISY AND SAY NO TO 'FSA' AND NO TO 'RDR'. WE ALL RECOGNISE THE NEED TO IMPROVE STANDARDS BUT THIS IS ONE STEP TOO FAR LORD TURNER!
CAN I SUGGEST A NEW FSA DIRECTIVE "TREATING STOCKBROKERS FAIRLY" (TSF) FOR THE 5,000+ BROKERS EFFECTED BY THIS NONSENSE?
I suppose if you're a builder and have been putting up skyscrapers for a living for 30 years plus you would be pretty miffed if someone told you that in order to continue what you've been doing for most of your adult life you would have to take a degree course. Furthermore this examination would take around 3 months off your work schedule and might lose you some contracts in the process. Without this examination and the assumed certificate you would NOT be able to practice as a self-taught builder. As part of this examination process you might be told that the British way of building was no longer the norm (by someone who has never lifted a brick) and that you must adopt new methods that have only recently been proved to be disastrous for the industry. In addition the reappraisal of the Health and Safety issues surrounding your building activities would be reappraised and a lecturer would remind you of the need to wear a hard hat even whilst sitting inside your wooden shed eating sandwiches and drinking builders tea. READ ON....
My partner, a former Lieutenant in the Russian Army, a daughter of KGB parents (& a friendlier family you couldn't imagine to meet) has ordered me to respond in the appropriate manner. I was brought up in a typical English (actually the roots are Cornish but I wont dwell on that just now) family with strong protestant beliefs and a self-belief that fair play and hard work would pay off in the world of business, a business or profession as it happens that family members have been doing the same way for over 135 years. In the traditions of many apprentice trades the world of stockbroking and investment management has evolved through brokers passing on trading and investment techniques to younger brethren and investors in turn often writing and talking about their experiences sometimes to brokers but usually to all and sundry. I have a letter dated 1986 during 'Big Bang' suggesting that I was deemed back then (perhaps) as someone who they would grant a Registered Representative status to. The letter goes on to say that the LSE would respond in due course. That follow-up letter from London Stock Exchange ("LSE") never arrived and as my father, my younger brother, around 3500 Members of the Stock Exchange can testify the single ownership shares controlled by them were unceremoniously swapped for a pittance, £10,000 each. In order to appease this obvious anomaly in valuation their membership was transferred to a new FREE body (The Securities Institute) who promised to protect their interests and uphold the ethics that once proud Members maintained. In addition those younger brokers and practitioners, then described as the "marzipan layer", were unconditionally offered FREE membership alongside the former Members, some who had taken Stock Exchange Practice Examinations, others simply fathered in. It should be recalled that the "LSE" effectively suspended its examinations around 1986 and The Securities Institute (as it was known then) took on the old Members and a few "marzipan" brokers without any plans to introduce or replace the existing arrangements. My interview with the then CEO clearly stated to me personally at SII offices near the Monument that a waiver for further examination would be accepted at any time in the future. My father, my younger brother, myself and around 3500 stockbrokers and stockjobbers thus became MSI (Members of The Securities Institute). Many brokers back then were alarmed at the way that investment banks were behaving; the rest is history. The Securities Association was formed from the Financial Services Act 1986 and all 'registered representative' licences were administered to those of us deemed competent to give advice. Those that had been simple assistants were given 'registered trader' permits allowing them to take orders rather than actually give advice or transact. Now a peculiar thing happened I recollect prior to the new Act, FSMA 2000, replacing the FSA 1986. All compliance departments reassessed those in the front office and 'control functions' were introduced. I remember being seriously perturbed that my qualifications in banking, my experience as an inter-bank money broker and my experience as a bullion broker & clerk between 1975 (when I left school) and 1980 when I joined a stock exchange member firm would NOT be taken into account. In essence I believe that it was too complicated for my compliance department at that time to processs these functions but ultimately my control functions were (see FSA website register on the internet) CF21 Investment Adviser, CF26 Customer Trading and interestingly CF27 Investment Management dates 1st Dec 2001 to 31st October 2007. These dates are interesting because it would appear now that brokers and investment managers in my position have been suitably stitched up by FSA and all the bodies that have interests in maintaining CPD (Continued Professional Development) and generating vast revenues from providing courses and examinations for younger less experienced capital markets personnel. On 1st November 2007 prior to the June 2009 publication of the 168 page Retail Distribution Review my control function was downgraded like many others to merely CF30 Customer allegedly replacing the previous 3 functions but actually teeing us all up for a new Level 3/Level 4 process. Words like draconian and orwellian spring to mind but it's the sheer ageist attitude here together with the lack of honesty, integrity and ethics that I find extraordinary. No wonder then that many secretly are alarmed at the little white book that was sent to me recently by The Securities & Investment Institute (now with 40,000 members)entitled "Integrity At Work". In addition the FSA have introduced another interesting sideshow called "Treating Customers Fairly". It might be argued, and who could disagree, that the banks have NOT treated their customers fairly but without sounding arrogant or patronising I doubt the same could be said for the remaining UK stockbroking firms nor their personnel. Perhaps if the UK government had listened back in 1983-1985 to the experienced exchange personnel who objected to banks competing head to head with brokers in investment products and trading enterprises then this debate about professionalism and integrity would not have surfaced. It was evident, however, to many that once the Conservative Government had introduced the FSA 1986 and a new regime of regulation and compliance that a monster would be created. I suppose that the great irony is that it was the same Thatcher government who preached PRODUCTIVITY that created this institution, the super-regulator, that meanders from one crisis to the next, preventing established practitioners from driving the investment community. One former broker I know eloquently referred to the compliance industry as THE DEALING PREVENTION UNIT and he wasn't far from reality. Having looked at the RDR myself I find little to commend. It has little mention of what we do daily and seems to forgot the raison d'etre for having stockbrokers and investment managers in the first place. The sheer misundertanding of the word INVESTMENT is the basis of what is wrong with FSA (and New Labour). The likelihood of FSA addressing the need to attract suitable professional personnel is unlikely. In the past few years there has been a deliberate attempt by FSA to replace ex-practitioners with lawyers, accountants, professional bureaucrats and such like. I can't see any reasonable experienced and competent stockbrokers and investment managers moving across to a compliance role.
The Conservative Party should oppose the RDR and all its recommendations as it goes against the grain of what the british end of the market stands for. The sooner the FSA is disbanded the better along with the permanent dissolution of FSMA 2000 and the interference that goes with it. Over the last few years many onshore bucket shops have been granted licences by FSA; if they sat offshore they would be called boiler rooms. A new exchange that is self-regulated like the old exchange that my family were part for over 130 years is long overdue. The SII like many other groups with vested interests needs clearer direction and I think UK broking personnel need to stand up to these orwellian changes. The alternative is to move offshore BUT this would be a great disservice to the many '000s of clients that already have had to put up with monstrous legislation, the costs of which have been passed on to them and are likely to continue to do so. The current millions of complaints outstanding with the banking ombudsman will pale into significance if experienced personnel grandfathered into the process are treated this way.
YOUR EXCHANGE NEEDS YOU TO STAND UP TO THIS HYPOCRISY AND SAY NO TO 'FSA' AND NO TO 'RDR'. WE ALL RECOGNISE THE NEED TO IMPROVE STANDARDS BUT THIS IS ONE STEP TOO FAR LORD TURNER!
CAN I SUGGEST A NEW FSA DIRECTIVE "TREATING STOCKBROKERS FAIRLY" (TSF) FOR THE 5,000+ BROKERS EFFECTED BY THIS NONSENSE?
MARKET WARNING- & a strong case for Precious Metals exposure
What really is happening in the Stock Market - MARKET WARNING & the strong case for Precious Metals exposure
-Richard Hoblyn FSI
Since 9th March the FTSE100 (S&P and DJIA have similarly rallied) has rallied almost 50%. Why? Well, in essence there has been a strong media drive (spun no doubt by Mendelsohn) that 'green shoots' and recessionary recovery is well on it's way. Recently commentators have suggested that the recovery and speed of it has been remarkable and even efficient. The predictions that the TARP program and Quantitative Easing may cause horrific economic problems in the future has been brushed aside. The old market adage "sell in May...don't come back till St.Leger Day" has been quashed as markets have been rising almost untested. The truth is that volumes have not been that high whilst institutions have sat on the fence. Day traders and active investors have had a field day as SHORTS have been squeezed mercilessly. Hedge funds have gone out of business only to be replaced by new funds, ably supported and funded by the very architects of the credit crunch. Regulation has failed yet again to curb excesses despite political and electoral anger. Guaranteed bonuses and just ordinary bonuses have been spun to death as shareholders get fleeced by the very managers that they effectively control. Balance sheets remain overstretched despite numerous fund-raisings and reorganisations but banks are still not playing the game. Funds raised through QE have not found their way into SME's and the private sector in the UK has been abandoned. The scale of debt amongst banks and large cap stocks is still breathtaking and no-one seems to be getting to grips with the destructive forces surrounding derivatives that many in financial services just don't understand. Many companies with questionable balance sheets should be ignored by sensible investors but sadly many are getting sucked into this rally. The old "Rockefeller shoe-shine boy" effect is back as new investors (just like 1930) clamber aboard the runaway train.
What is going to stop this train from getting to its destination? A major derailment is on the cards as the US$, £stg & Euro come under more pressure as the Chinese Yuen screams for attention. The recent rise in the gold price has got most short-term bulls of precious metals excited. Long-term gold/silver bulls such as myself remain relaxed as daily activity and volatility in precious metals still remains relatively low compared to the early '80s when bullion offices had queues of investors selling scrap or buying krugerrands. Just this week there was confirmation (& this is significant although Bloomberg hasn't yet caught up to speed on this) that the Chinese Goverment have accumulated over 1,000 tonnes of gold in preparation for a pseudo-gold standard attack on the US$. Of course China doesn't want to rock the boat just yet as it needs to accumulate a great deal more tonnage to combat the effect of it's $2+ trillion exposure in US Treasuries. The story goes that once China feels it has enough enabling stabilisation of its own currency it will pull the plug on its Treasury Bills, probably making substantial losses along the way, but of course the $ would spin out of control and gold would rocket to $2,000+++ thus compensating them. The effect would be a swift replacement of the reserve world currency to the YUEN. Let's not forget that the chinese invented the capital markets ideology well ahead of the British in 18th/19th centuries. Another alarming factor in the markets today (again a case for further chinese buying of gold) is the growth rate there of circa 7-8% (well below the 11% but above the recent 5-6% end 2008) that is fuelling chinese property prices (on cheap credit!) and the stock market which is a vast bubble. The chinese authorities are trying to educate their army of investors but like 1929, 1974, 1987 & 2008 it may just be too late. My own take on this is that global investors are expecting a capitulation in the USA (the Obama healthcare program is one step too far and Detroit thinking is dreamy) whereas the likelihood of a major slowdown in China after a burning correction there may put the skids on further western recovery. Emerging markets (ignoring China for a moment) are still growing and there is no doubt the demand will continue regardless so some exposure with Mobius' Templeton Emerging & JP Morgan Emerging seems sound.
The FTSE100 by my calculation will hit resistance around 5133 and I urge everyone to review exposure in property portfolios and equities. The virtual 0% interest rate policies adopted by the west could suddenly change direction (the Economist Intelligence Unit has suggested this) catching everyone out and sending equities and property prices further south. The bulls, however, argue that Kraft's bid for Cadbury's is the beginning of new M&A activity. I don't buy this argument as accounting issues and a lack of genuine investment for new businesses is at an almost standstill. Furthermore the recent GM Opel scenario does not bode well for EU relations as unions smell the flavour of the stale coffee down the road; this could be a repeat of the '70s as UK industrialists ignite ill feeling towards UK (mis)governance.
Throughout the remainder of 2009 I expect oil activity to continue (this is the one sector where some genuine M&A consolidation is likely), would be wary of the base metals story and continue to recommend exposure in precious metals despite further deflationary pressures. The world global markets are like a pressure pot just now. It's just a case of where it will blow next but some alarming f/x rate moves are on the cards very soon.
-Richard Hoblyn FSI
Since 9th March the FTSE100 (S&P and DJIA have similarly rallied) has rallied almost 50%. Why? Well, in essence there has been a strong media drive (spun no doubt by Mendelsohn) that 'green shoots' and recessionary recovery is well on it's way. Recently commentators have suggested that the recovery and speed of it has been remarkable and even efficient. The predictions that the TARP program and Quantitative Easing may cause horrific economic problems in the future has been brushed aside. The old market adage "sell in May...don't come back till St.Leger Day" has been quashed as markets have been rising almost untested. The truth is that volumes have not been that high whilst institutions have sat on the fence. Day traders and active investors have had a field day as SHORTS have been squeezed mercilessly. Hedge funds have gone out of business only to be replaced by new funds, ably supported and funded by the very architects of the credit crunch. Regulation has failed yet again to curb excesses despite political and electoral anger. Guaranteed bonuses and just ordinary bonuses have been spun to death as shareholders get fleeced by the very managers that they effectively control. Balance sheets remain overstretched despite numerous fund-raisings and reorganisations but banks are still not playing the game. Funds raised through QE have not found their way into SME's and the private sector in the UK has been abandoned. The scale of debt amongst banks and large cap stocks is still breathtaking and no-one seems to be getting to grips with the destructive forces surrounding derivatives that many in financial services just don't understand. Many companies with questionable balance sheets should be ignored by sensible investors but sadly many are getting sucked into this rally. The old "Rockefeller shoe-shine boy" effect is back as new investors (just like 1930) clamber aboard the runaway train.
What is going to stop this train from getting to its destination? A major derailment is on the cards as the US$, £stg & Euro come under more pressure as the Chinese Yuen screams for attention. The recent rise in the gold price has got most short-term bulls of precious metals excited. Long-term gold/silver bulls such as myself remain relaxed as daily activity and volatility in precious metals still remains relatively low compared to the early '80s when bullion offices had queues of investors selling scrap or buying krugerrands. Just this week there was confirmation (& this is significant although Bloomberg hasn't yet caught up to speed on this) that the Chinese Goverment have accumulated over 1,000 tonnes of gold in preparation for a pseudo-gold standard attack on the US$. Of course China doesn't want to rock the boat just yet as it needs to accumulate a great deal more tonnage to combat the effect of it's $2+ trillion exposure in US Treasuries. The story goes that once China feels it has enough enabling stabilisation of its own currency it will pull the plug on its Treasury Bills, probably making substantial losses along the way, but of course the $ would spin out of control and gold would rocket to $2,000+++ thus compensating them. The effect would be a swift replacement of the reserve world currency to the YUEN. Let's not forget that the chinese invented the capital markets ideology well ahead of the British in 18th/19th centuries. Another alarming factor in the markets today (again a case for further chinese buying of gold) is the growth rate there of circa 7-8% (well below the 11% but above the recent 5-6% end 2008) that is fuelling chinese property prices (on cheap credit!) and the stock market which is a vast bubble. The chinese authorities are trying to educate their army of investors but like 1929, 1974, 1987 & 2008 it may just be too late. My own take on this is that global investors are expecting a capitulation in the USA (the Obama healthcare program is one step too far and Detroit thinking is dreamy) whereas the likelihood of a major slowdown in China after a burning correction there may put the skids on further western recovery. Emerging markets (ignoring China for a moment) are still growing and there is no doubt the demand will continue regardless so some exposure with Mobius' Templeton Emerging & JP Morgan Emerging seems sound.
The FTSE100 by my calculation will hit resistance around 5133 and I urge everyone to review exposure in property portfolios and equities. The virtual 0% interest rate policies adopted by the west could suddenly change direction (the Economist Intelligence Unit has suggested this) catching everyone out and sending equities and property prices further south. The bulls, however, argue that Kraft's bid for Cadbury's is the beginning of new M&A activity. I don't buy this argument as accounting issues and a lack of genuine investment for new businesses is at an almost standstill. Furthermore the recent GM Opel scenario does not bode well for EU relations as unions smell the flavour of the stale coffee down the road; this could be a repeat of the '70s as UK industrialists ignite ill feeling towards UK (mis)governance.
Throughout the remainder of 2009 I expect oil activity to continue (this is the one sector where some genuine M&A consolidation is likely), would be wary of the base metals story and continue to recommend exposure in precious metals despite further deflationary pressures. The world global markets are like a pressure pot just now. It's just a case of where it will blow next but some alarming f/x rate moves are on the cards very soon.
Wednesday, 22 July 2009
FSA the RDR & the conservatives!
What great news this week from George Osborne & The Tories re the intended abolition of FSA. This in my view is long overdue. The compliance industry has mushroomed since the late '90s to the detriment of the securities industry. Is it coincidence that the growth in FSA numbers has corrolated with excessive profits at the investment banks? No, the profits have just lead to fatter fees for the regulators. What has happened though is that equity securities personnel have been over-regulated in comparison to derivatives specialists and investment banking personnel. What George hasn't said is what happens to the LSE and the securities firms (mainly British) that have NOT caused the credit crunch. Well George, I've got a suggestion for you. Why not delist the LSE (that way knighthoods cannot be handed out for allegedly fighting off competition) and allow the British practitioners (individuals) who have been let down consistently by LSE , SII ,APCIMS to (re)create a Stock Exchange run by and for the benefits of its members and investors ie. similar to the GREAT exchange that we once had. All we have today is a LSE PLC intent on cranking up volumes. A better quality, self-managed exchange will do BRITISH INDUSTRY alot of good. We no longer need an exchange and regulator that jointly have squandered the opportunities and allowed bankers to call themselves brokers by trading (shareholders) capital intended for proper banking servicing and investment. Let's ALL hope the FSA gets its feathers trimmed before the Retail Distribution Review nonsense gets any further! My SII Handbook entitled "Integrity At Work in Financial Services" has found its way into my eco-wood burner. Now that's what I call an integrity dilemna! It rather looks as though Lord 'RED' Adair Turner may have a firefight of his own pretty soon.
Thursday, 16 July 2009
Even LSE seems to be heading in the wrong direction
For someone who runs a stock exchange, Xavier Rolet is a big believer in bonds. One of the most prominent acts of the new chief executive of the London Stock Exchange since he took over in May has been the purchase by his family trust of £3.2 million worth of his employer’s 2019 bonds, which bear an enticing 9.125 per cent yield.
But such fixed-income securities could figure in his thinking in other ways — specifically as one of the areas into which the LSE might expand. Its Borsa Italiana offshoot already operates a retail corporate bonds market, MOT, which could be usefully transplanted to London. So, too, could the breadth of equity derivatives traded on its Idem exchange in Milan, a natural next step given the presence of the LSE’s EDX platform in Russian and Scandinavian futures and options.
Elsewhere, Mr Rolet has a clear opportunity to push into post-trade activities, specifically clearing and settlement, where the LSE is a minnow relative to NYSE Liffe and Deutsche Börse, its overseas rivals.
With Mr Rolet only eight weeks in the job, the LSE’s shareholders will have to wait a little longer for his strategic pronouncements. But for now, yesterday’s first-quarter update provided grounds for quiet encouragement. At an above-forecast £162 million, revenues in the three months to June 30 were down 8 per cent on the year, but up 5 per cent on the previous quarter. Post-trade activities in Italy provided much of the boost, with the LSE’s move to cut fees at Idem increasing derivatives volumes by 41 per cent, with a corresponding benefit to clearing. That change raises hopes that the LSE’s lower tariffs for UK equity trading, which come into effect in September, will be similarly well-received.
Of course, the LSE’s wider fortunes remain geared to stock market levels, while revenues from data services are sensitive to City job cuts. But competition from rivals such as Chi-X has been muted to date, the scope for capturing share of the over-the-counter derivatives market is huge, and Mr Rolet is heavily incentivised to succeed. At 676p, or 11 times earnings, buy on weakness.
***my god there we have it...the LSE has finally forgotten what its role is....instead of promoting investment it wants to support the likes of Goldmans by spreading into DERIVATIVES...it'll end in tears***
INSTEAD OF CURBING DERIVATIVES THE LSE SEEMS TO WANT TO CHASE THE RICH PICKINGS THAT THE LIKES OF GOLDMAN SACHS, JP MORGAN CAN PROVIDE. TIME FOR THE GOVERNMENT TO STEP IN & RETURN THE EXCHANGE TO THE (HONEST) UK PRACTITIONERS WHO NAVIGATE THEIR WAY IN THE EQUITY, GILT & BOND MARKETS.
But such fixed-income securities could figure in his thinking in other ways — specifically as one of the areas into which the LSE might expand. Its Borsa Italiana offshoot already operates a retail corporate bonds market, MOT, which could be usefully transplanted to London. So, too, could the breadth of equity derivatives traded on its Idem exchange in Milan, a natural next step given the presence of the LSE’s EDX platform in Russian and Scandinavian futures and options.
Elsewhere, Mr Rolet has a clear opportunity to push into post-trade activities, specifically clearing and settlement, where the LSE is a minnow relative to NYSE Liffe and Deutsche Börse, its overseas rivals.
With Mr Rolet only eight weeks in the job, the LSE’s shareholders will have to wait a little longer for his strategic pronouncements. But for now, yesterday’s first-quarter update provided grounds for quiet encouragement. At an above-forecast £162 million, revenues in the three months to June 30 were down 8 per cent on the year, but up 5 per cent on the previous quarter. Post-trade activities in Italy provided much of the boost, with the LSE’s move to cut fees at Idem increasing derivatives volumes by 41 per cent, with a corresponding benefit to clearing. That change raises hopes that the LSE’s lower tariffs for UK equity trading, which come into effect in September, will be similarly well-received.
Of course, the LSE’s wider fortunes remain geared to stock market levels, while revenues from data services are sensitive to City job cuts. But competition from rivals such as Chi-X has been muted to date, the scope for capturing share of the over-the-counter derivatives market is huge, and Mr Rolet is heavily incentivised to succeed. At 676p, or 11 times earnings, buy on weakness.
***my god there we have it...the LSE has finally forgotten what its role is....instead of promoting investment it wants to support the likes of Goldmans by spreading into DERIVATIVES...it'll end in tears***
INSTEAD OF CURBING DERIVATIVES THE LSE SEEMS TO WANT TO CHASE THE RICH PICKINGS THAT THE LIKES OF GOLDMAN SACHS, JP MORGAN CAN PROVIDE. TIME FOR THE GOVERNMENT TO STEP IN & RETURN THE EXCHANGE TO THE (HONEST) UK PRACTITIONERS WHO NAVIGATE THEIR WAY IN THE EQUITY, GILT & BOND MARKETS.
Tuesday, 14 July 2009
The response from SII and my reply
Yvonne
Thanks for your prompt response! It seems to me that SII has a moral responsibility to support its long-serving members as without the support given to the Institute by these members I doubt the SII would be in its present strong position today. The routes of SII were NOT in the examination area but based on experience in the main. It is clear that FSA cannot be trusted in keeping to its promises and guidelines undertaken in its previous life as TSA so I believe that the minority of those members here described by me as the marzipan members should be supported by SII.
I regret I cannot be present tomorrow so hope that SII can convey my views which I suspect are representative of many of SII members.
It is pretty galling that the very ethical conduct that FSA seems to advocate does NOT appear to be very prevalent in its own policies.
Richard Hoblyn FSI NO 3513
--------------------------------------
Dear Mr Hoblyn
Thank you for your email. I look forward to seeing you at the open day tomorrow.
I do understand your views on this, but I'm afraid that your question is really for the FSA (who will be present tomorrow) rather than the SII. As an Institute, we have tried very hard, and with some success, to support our members by making sure that our legacy qualifications are acceptable as meeting the transition arrangements, but the FSA is clear that it will not accept what it terms grandfathering of individuals without current or legacy qualifications. I can say that if you do not feel that you wish to take a written examination, the FSA is proposing an oral examination route conducted by awarding bodies for very experienced practitioners, and when the arrangements are in place for this, you may want to consider that option.
I am sorry not to be able to be more help.
Kind regards
Yvonne Dineen
Via RDR inbox
Thanks for your prompt response! It seems to me that SII has a moral responsibility to support its long-serving members as without the support given to the Institute by these members I doubt the SII would be in its present strong position today. The routes of SII were NOT in the examination area but based on experience in the main. It is clear that FSA cannot be trusted in keeping to its promises and guidelines undertaken in its previous life as TSA so I believe that the minority of those members here described by me as the marzipan members should be supported by SII.
I regret I cannot be present tomorrow so hope that SII can convey my views which I suspect are representative of many of SII members.
It is pretty galling that the very ethical conduct that FSA seems to advocate does NOT appear to be very prevalent in its own policies.
Richard Hoblyn FSI NO 3513
--------------------------------------
Dear Mr Hoblyn
Thank you for your email. I look forward to seeing you at the open day tomorrow.
I do understand your views on this, but I'm afraid that your question is really for the FSA (who will be present tomorrow) rather than the SII. As an Institute, we have tried very hard, and with some success, to support our members by making sure that our legacy qualifications are acceptable as meeting the transition arrangements, but the FSA is clear that it will not accept what it terms grandfathering of individuals without current or legacy qualifications. I can say that if you do not feel that you wish to take a written examination, the FSA is proposing an oral examination route conducted by awarding bodies for very experienced practitioners, and when the arrangements are in place for this, you may want to consider that option.
I am sorry not to be able to be more help.
Kind regards
Yvonne Dineen
Via RDR inbox
Monday, 13 July 2009
Letter to CEO The Securities & Investment Institute 13th July 2009
Sir(s)/Madam
I have been a member of the Institute since The Securities Insitute was formed after 'Big Bang' becoming a FSI based on experience some years ago. When the institute migrated the interests of the old LSE members into it's membership there were a number of other people who's interests were protected too. At the time these people were referred simply as "The Marzipan Layer", perhaps described as those front office personnel destined for partnership in existing private client firms (rather than institutional firms). Some of these people had partially/wholly taken LSE examinations or had other professional qualifications and because their degrees of experience and integrity were deemed worthwhile and commensurate The Securities Institute supported these people and at the time sought to strengthen its own membership base. At the time it was made clear that this grand-fathering would not require further examination so I am somewhat bewildered by my firm's guidance that maybe I might be forced to undertake up to 200 hours of course work also involving stress testing of the level of my integrity.
At the age of 52 y.o. , being self-employed and having a substantial private client business involving discretion, advice & simple execution of business I am at a loss to ascertain how I can fit this extra work in to my busy schedule and at the same time pay for this and manage my business whilst doing this extra work.
Surely the FSA should honour its agreement to the registered representatives in the industry and SII ensure that elderly members such as myself are not subjected to unnecessary overload in what is already an over-regulated universe. I commend the work of SII to date but question the need for those with experience (maybe over the age of 50) to undertake such Orwellian further examination.
Richard Hoblyn FSI
I have been a member of the Institute since The Securities Insitute was formed after 'Big Bang' becoming a FSI based on experience some years ago. When the institute migrated the interests of the old LSE members into it's membership there were a number of other people who's interests were protected too. At the time these people were referred simply as "The Marzipan Layer", perhaps described as those front office personnel destined for partnership in existing private client firms (rather than institutional firms). Some of these people had partially/wholly taken LSE examinations or had other professional qualifications and because their degrees of experience and integrity were deemed worthwhile and commensurate The Securities Institute supported these people and at the time sought to strengthen its own membership base. At the time it was made clear that this grand-fathering would not require further examination so I am somewhat bewildered by my firm's guidance that maybe I might be forced to undertake up to 200 hours of course work also involving stress testing of the level of my integrity.
At the age of 52 y.o. , being self-employed and having a substantial private client business involving discretion, advice & simple execution of business I am at a loss to ascertain how I can fit this extra work in to my busy schedule and at the same time pay for this and manage my business whilst doing this extra work.
Surely the FSA should honour its agreement to the registered representatives in the industry and SII ensure that elderly members such as myself are not subjected to unnecessary overload in what is already an over-regulated universe. I commend the work of SII to date but question the need for those with experience (maybe over the age of 50) to undertake such Orwellian further examination.
Richard Hoblyn FSI
Subscribe to:
Posts (Atom)